In a previous post, I outlined three truths about today’s economy that should guide our efforts to restore economic opportunity for all. This series is a deeper dive into those challenges, and some of the promising solutions I’ve observed. Be sure to read last week’s post, on the barriers to entrepreneurship facing people of color.
Over the past few years, Seattle, Washington, has taken on hairy labor issues and established itself as a pioneer in the field. First, the City passed the groundbreaking $15 minimum wage. Then came a secure scheduling ordinance, designed to give hourly workers more stability and income predictability.
So, it didn’t come as much surprise to me last December when Seattle became the first city to pass an ordinance giving drivers for ride-hailing companies, like Uber and Lyft, the right to collective bargaining. The City continued to make news when the local chapter of the national Teamsters labor union submitted an application to be the certified representative of those drivers. The application will be reviewed later this month. But regardless of the outcome, Seattle has opened the door for these independent drivers—not covered by traditional labor standards and protections—to band together to negotiate pay and working conditions.
Collective bargaining is uncharted territory for companies and laborers operating in what’s been dubbed the “online platform economy.” Undoubtedly, the rest of the country will be watching closely. That’s because Uber is just one, albeit prominent, example of this burgeoning labor model. Whether you’re in need of a haircut, a handyman or a personal assistant, app-enabled companies are making a seemingly endless array of goods and services available on-demand, at the touch of a button.
The challenge is how to anticipate and respond to the new opportunities and risks…particularly for Americans already marginalized or struggling under the current economic system.
As the recent election cycle made eminently clear, we are reeling from the loss of millions of traditional manufacturing jobs. Emerging technologies, shifting workforce needs—these macroeconomic trends boil down to newfound uncertainty for millions of Americans about where the next paycheck will come from. From where I sit at Living Cities, the challenge is how to anticipate and respond to the new opportunities and the risks that these tectonic shifts may bring, particularly for Americans already marginalized or struggling under the current economic system.
The Online Platform Economy: Small Scale, but Rapid Growth
First things first, it’s important to get a handle on one of the most basic questions—just how big is this thing, really? Under the umbrella of the online platform economy, there are two variations: platforms that connect users to people who can perform tasks or services—such as Uber or Taskrabbit—and those that facilitate the selling or leasing of capital goods—think, Airbnb or Getaround.
And although the frenzy of news and analyses may suggest otherwise, the proportion of people working via online platforms is actually remarkably slim. According to a recent analysis by JPMorgan Chase, in June 2016, only 0.9% of adults—the highest rate to date when the study was conducted—earned any income from either branch of the online platform economy. So, it’s fair to say that these apps don’t constitute the “new normal” for the American economy.
Yet. The number worth paying attention to is 102%. That’s the growth rate, year over year, in the number of people participating in the online labor economy. And the JPMorgan report reveals that, while growth in that sector has slowed steadily since 2014, it’s still exponential. To me, that’s evidence enough that the trend can’t be ignored.
The Bigger Picture of the Gig Economy
But that’s not to say that the face of work has not already undergone a major shift. The online, on-demand marketplace is only one, relatively small, component of the “gig economy,” which refers to a labor market where workers are engaged in short-term, contractual or freelance work, as opposed to being employed long-term by a company. Two economists out of Princeton, Alan Krueger and Lawrence Katz, conducted the most comprehensive study of this shift and found that the number of Americans engaged in alternative work arrangements rose 9.4 million between 2005 and 2015—actually higher than the rise in overall employment.
Now Is the Time to Act
What all of this data tells me is that we must grapple with the implications of these working arrangements now, before—as the trends suggest—they rapidly come to define our national labor market.
The gig economy offers new, flexible ways for people to more easily supplement their income. Many on-demand labor markets also have low barriers to entry. More low-skill workers can potentially get in the game and pick up another income stream. JPMorgan’s analysis revealed that online labor platforms like Uber and Taskrabbit are most typically used to help people offset rocky periods between jobs, or uncertain times when other forms of income dipped. Individuals have control over their schedules, working when and to the extent they choose.
For most of the major players of the gig economy, workers are considered “independent contractors,” meaning they’re not subject to the same protections as traditional employees. In Seattle, for example, prior to 2015, that meant ride-hail drivers did not benefit from the City’s $15 minimum wage or enjoy the right to collective bargaining. Likewise, when it comes to finding insurance, employees are on their own. And without the securities that traditional employers are mandated to provide, unforeseen circumstances—like injuries or a car breakdown—can devastate a family’s finances.
One fascinating study helps capture and exemplify the complexities of these changes. The McKinsey Global Institute released an international study, reporting that the majority of gig-economy workers had sought out alternative work arrangements and were happy with the flexibility and supplemental income they provided. But, a sizable minority—an estimated 23 million people globally—are “reluctant” users, leaning on gig economy arrangements as a primary source of income.
One of the biggest hurdles is that legal categorizations of workers are limited: people are either employees or they’re contractors. All or nothing. In our system, where most of our social protections—like healthcare, disability benefits, retirement planning—are traditionally funneled through an employer, it’s tough make current regulations fit the variety of today’s world. Solutions like instituting collective bargaining rights, as we’re seeing in Seattle, may end up being Band Aids, as we work to negotiate regulatory buckets that make sense for changing industries.
Even so, it’s experimentation that’s called for right now, and Seattle is a vanguard. This is the time to start those efforts, to protect our workers and to help each other weather—and hopefully reap the benefits of—these changes.